Monday, November 14, 2011

Jars in the Backyard

It's not the top investor class that needs assurance. It's the 99%. Surprise!

With the economy in a slump for nearly four years, corporate executives and conservative politicians have repeatedly invoked "uncertainty" as a major barrier to American job-creation. The "uncertainty" jab is a go-to talking point for any congressional Republican looking to tag President Barack Obama as a tax-raising, regulation-obsessed foe of American businesses.

But according to banking data compiled by economic research firm Moebs Services, the uncertainty plaguing the American economy has nothing to do with government regulations or taxes on millionaires. It's an uncertainty driven squarely by consumers and small-businesses who are worried about their short-term financial prospects. And it's been going on since well before Obama took up residence in the White House.

Since the end of 2007, bank customers have pulled over $900 billion out of certificates of deposits at major U.S. banks, parking their money in checking accounts and money market deposit accounts. Banks pay customers interest to park their money in CDs, but pay out next-to-nothing for money market accounts, and still less -- usually nothing -- for checking accounts.

"These are enormous shifts," Moebs Services founder and Chairman Mike Moebs told HuffPost. "We haven't seen stuff like this since the 1930s."

It's all about access. If the bottom falls out, people want that money handy to pay the bills.

The total balance of retail CDs -- interest-bearing accounts targeting ordinary consumers -- has fallen by about $350 billion since the end of 2007. Checking accounts, meanwhile, have climbed by an almost identical amount over the same time period -- jumping from $620 billion to $960 billion, an increase of over 50 percent, which has occurred despite repeated threats from big banks to charge new checking fees.

Another $570 billion has been pulled from "jumbo" CDs -- bigger CD accounts that are used by the wealthy or businesses -- while money market deposit account balances have jumped from $3.9 trillion to $5.7 trillion, suggesting an additional flow of money from other investments, like the stock market and mutual funds.

The NY Times reports this morning those "threats" of new fees are very real, with banks quietly increasing prices and raising minimums for short-term services such as checking. That's nickle and dime stuff, but it adds up. Without confidence in long-term investment on the part of the consumer though, the cycle continues.

This kind of uncertainty -- a lack of consumer confidence -- can become a self-fulfilling prophecy. When consumers pull their money out of longer-term investments, banks are reluctant to make longer-term loans, which in turn can hamper businesses, which become reluctant to hire without access to credit. The government can, in fact, take steps to alleviate the kind of uncertainty by boosting demand in the economy -- essentially, spending government money. But with congressional Republicans vilifying government spending on a regular basis, this prospect has been unlikely for years.

With the ax poised to fall from Super Congress, it's not looking good for a growth in demand; matter of fact, it's going to be the opposite as they pull more spending out of the economy. And to make matters worse, the latest rumor is that the committee is going to defer on making a decision on exactly how to raise revenue until next year, which will only serve to reinforce the "uncertainty" talking point. (And please, raise your hand if you think lawmakers are going to vote to raise specific taxes on anyone during what is shaping up to be the most vicious campaign in our lifetime.)

So, what kind of jars do we use, anyway?